Pound US dollar (GBP/USD) exchange rate dips amid risk averse trade
Article updated 16:10, 29/5/2024
The pound US dollar (GBP/USD) exchange rate is weakening this afternoon, amid a deteriorating market mood.
The pessimistic trading impulse is allowing the safe-haven US dollar (USD) to gain ground against riskier assets.
Due to the pound’s (GBP) increasingly risk-sensitive nature, it is struggling to maintain a defense against the ‘greenback’.
Furthermore, US Treasury bond yields have increased over the course of the day’s session, hitting a monthly high. This is further serving to support the ‘greenback’ against its peers.
At the time of writing, GBP/USD is trading at around US$1.2711, a fall of just under 0.4% from today’s opening rates.
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Pound US dollar exchange rate treads water amid lack of data
The pound US dollar exchange rate is wavering this morning, due to a lack of data on both sides of the pairing.
At the time of writing, GBP/USD is trading at around US$1.2759, showing little movement from today’s opening rates.
Pound (GBP) listless amid continued absence of data
The pound (GBP) is adrift this morning, as domestic data releases remain few and far between. This is keeping investors focused on the Bank of England’s (BoE) next steps.
Recently the BoE announced that it would be ceasing all public appearances ahead of the UK’s General Election in July. This prompted the pound to spike earlier in the week, as it essentially erased the likelihood of a June interest rate cut from the central bank.
Michael Saunders, former member of the BoE’s Monetary Policy Committee and senior economist at Oxford Economics, commented:
‘They themselves [the MPC] wouldn’t want to be a cause of volatility. The MPC would be especially reluctant to do a surprise interest rate change during an election campaign. In practice, a June rate cut is already ruled out by inflation figures. I would still say three rate cuts – the first one not until August, and then a couple more later in the year.’
As such, bets on an August rate cut from the BoE may be serving to keep Sterling’s appeal capped during today’s trade.
US dollar (USD) flat amid lull in data releases
The US dollar (USD) is muted this morning, owing to a continued absence of impactful data releases.
This is prompting the safe-haven ‘greenback’ to remain flat against its peers, despite a cautious market mood. Generally, this morning’s bearish trading impulse would benefit the US dollar, but it seems unable to capitalise.
USD exchange rates may be seeing additional cushioning from hawkish Federal Reserve bets. Recently, Fed officials have commented that persistent inflation could prompt an additional interest rate hike. This speculation could be keeping USD afloat this morning.
Neel Kashkari, President of the Fed Bank of Minneapolis, commented on Tuesday that:
‘I don’t think anybody has totally taken rate increases off the table. I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.’
Pound US dollar exchange rate forecast: US core inflation in focus
Looking ahead for the US dollar, the core catalyst of movement is likely to be the core PCE price index, due to print on Friday.
As the Federal Reserve’s favoured inflation gauge, predictions of unchanged levels in April could strengthen USD.
Persistent inflation may prompt the Fed may hike interest rates again, with this speculation lifting the ‘greenback’ against its peers.
Beforehand, the latest GDP growth rate estimate for the first quarter of 2024 is due to print. If this confirms slowing growth on a quarterly basis, the US dollar could weaken against its peers.
For the pound, meanwhile, data releases are few and far between through to the end of the week. This could leave Sterling static against its peers.
However, due to its increasingly risk-sensitive nature, a shift towards bullish trade could lift GBP above the safe-haven US dollar.